Is it Time to Sell Skyworks and Qorvo?

Skyworks Solutions (SWKS) has been my favorite Apple (AAPL) supplier for almost two years. I called the company a buy when it was trading at $28. Since then, the company has followed an impressive upward trajectory and hit all-time highs of $110 earlier in August. However, in the last three months, Skyworks has fallen almost 25% despite delivering great quarterly numbers and affirming good guidance. The company recently posted strong Q4 numbers and offered strong guidance for the next quarter yet again.

I am used to seeing Skyworks beat estimates, and the company has delivered a raise-and-beat quarter ever since I started covering the stock.

However, the company “only” delivered in-line EPS of $1.52 this time around. The company’s revenue jumped 22.6% Y/Y to $880 million, beating the estimates by $3.06 million.

Another one of my favorite companies—Qorvo (QRVO)—delivered a great quarter that saw shares jump as much as 25%. The company’s EPS of $1.22 beat the consensus target of $1.11 while revenues of $708 million were also ahead of the analysts’ expectations by $8.9 million. The company expects FQ3 revenue of $720 million-$730 million and EPS of $1.25-$1.30 against a consensus of $741.2 million and $1.26.

I have been a Skyworks and Qorvo bull for a long time now, and both the companies have risen considerably in the last few trading sessions due to the stellar earnings reports. I don’t think the stocks are expensive right now, however I think investors should use the recent rally to book profits and sell the stocks.

Both Skyworks and Qorvo rely heavily on China and in my previous articles I have explained why I think the Chinese economy is still in troubled water. Legendary short-seller Jim Chanos recently said the same thing when he was putting forward his argument for shorting Chinese e-commerce giant Alibaba (BABA). Due to both the companies’ increased exposure to China, I think investors should book profits and wait for a better entry point.

In addition, Credit Suisse supplier checks found that Apple cut component orders as much as 10% recently. This cut can possibly be an outcome of weak demand from China and could hurt Skyworks and Qorvo going forward.

Although I believe the stocks are trading at conservative valuations, I think investors should stay cautious in the present market conditions. Given Skyworks and Qorvo’s high exposure to China, investors should wait for a better entry point and sell the recent rally.

Conclusion

Skyworks and Qorvo have been my favorite stocks, but I think it’s now time to part ways. Both the stock are still trading at a conservative valuation, but given the volatility in the market and both the companies’ high exposure to China, I think investors should book profits after the recent rally. Hence, I think investors should sell Skyworks and Qorvo.

Published on Nov 12, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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